READ TO SUCCEED: INVEST IN THE BEST
There are scores of books for sale about the life, successes and invest- ment philosophies of Warren Buf- fett. A quick search in the book sec- tion on amazon.co.uk for the Sage of Ohama’s name brings up no less than 5,591 relevant results. From classic read The Snowball, to collec- tions of his timeless shareholder letters, along with hundreds of in- vestment guides, readers are spoilt for choice.
So is there really room on the market for yet another Buffett based book?
When its author is a top performing fund manager, and considered to be one of the foremost authorities on the investment guru, then the answer is clearly yes.
From outer-space to outperformance
Invest in the Best’s author, Keith Ashworth-Lord, is a man of many tal- ents. He graduated with a degree in Astrophysics, then obtained a Masters in Management Studies before em- barking on a career in the investment markets. Over 30 years he has worked in a variety of roles, winning a clutch of awards for his stock picking skills along the way. However, his current focus is Investment Director at Sanford DeLand Asset Management, which he set up in 2010.
The firm’s flagship product is the Buf- fettology Fund, notable for being the only fund to have a licence to use the trademarked “Buffettology” name – trademark owner Mary Buffett (War- ren’s former daughter in law) was so impressed with Ashworth-Lord that she gave him the go ahead to use it. By applying the Business Perspective Investing methodology practised by Buffett himself, as well as Benjamin Graham, the UK focussed fund has delivered excellent returns and signif- icantly outperformed its benchmark since launch in March 2011 (see chart below). Current holdings include small cap favourites Domino’s Pizza, Dart Group and Bioventix.
Secrets of Success
So how has Ashworth-Lord’s fund been so successful? He puts this down to one simple reason which echoes War- ren Buffett’s investment philosophy: buying superior businesses at prices that make business sense.
Invest in the Best focuses on applying this methodology, which is encap- sulated in the previously mentioned investment style known as Business Perspective Investing. And it is a good old fashioned investment text, inter- spersed with case studies, explain- ing in detail how the investment style works, and teaching investors how to put it into practice themselves.
To give a basic explanation, Business Perspective Investing is a long-term, fundamentals based investment method which argues there is no phil- osophical distinction between buying shares in a company and buying the company in its entirety. As such, when analysing a company investors should dig as deep into the quality of the busi- ness as someone who was going to buy the whole thing.
After a short introduction, which ex- plains how the author came to develop his own investment philosophy, the next few chapters concentrate on ap- plying the principles of Business Per- spective Investing to screen for compa- nies for investment consideration. The main focus in this initial analysis stage is to look for “quality businesses”, or in other words those that exhibit a number of characteristics which en- able them to flourish over the long term. These include a simple business model, transparent financial state- ments, high cash flow, superior competitive advantage, and many others which are covered throughout the core text of the book.
Looking for these characteristics can only be seen as an initial step in mak- ing an investment decision however, because great companies might not always sell on the market at a great price. So chapters eight and nine then take the reader through a number of ratio analyses and valuation tech- niques which can help them determine whether a stock is trading below its “in- trinsic value” and thus worthy of a buy. Small cap wonder stock James Halstead is used as an example through- out the ratio analysis, showing how investors could have spotted a winner by analysing metrics relating to sales, earnings, cash and assets. The author also highlights how non-accounting in- formation provided by management, such as number of stores, or number of employees, can be used to provide useful insights into companies. The valuation section could almost be a beginner’s guide, explaining the key concepts of the PE ratio, price to book value and others, but is also a useful refresher to more seasoned investors about the benefits and pitfalls of each approach.
The final chapter offers some useful advice on how investors can manage a portfolio of investments, including on when you should make the decision to buy and sell and how important divi- dends can be to total returns. My par- ticular favourite concept is, “buying £1 for less than £1”, otherwise known as the margin of safety. The greater the margin, the higher the return when the markets eventually realise the true value of a company.
The author is also an advocate of con- centrating wealth in conviction ideas, going against the modern view that by adding more holdings you reduce risk. After all, if you invest in only a few great companies you won’t need other holdings to offset losses from the bad ones.
Invest in the Best is a great book for all types of investors. Professionals will be able to see how their top per- forming peers do so well and those considering a career in fund manage- ment will learn a lot from it. Private investors too will get an insight into how to make excellent returns over the long term.
If the performance of the Buffettology fund wasn’t enough to convince you to take Ashworth-Lord’s approach to your investments then take note that he has never had an investment go bust in his entire career. He also wrote this book overlooking the swimming pool at his second home in Florida. He states this inthebook,nottoshowoffperse,but to highlight that without successful in- vestments he would never have had the chance to buy another property in a beautiful location. After reading this book, you might be able to too!
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